A frequently updated source for business news and comment on the universe of smaller, emerging US-based air transport companies.

Tuesday, June 13, 2006

International Captial Flow

As you might expect, we support looser restrictions on foreign ownership. It will lead to a faster cure for the current crop of very sick airlines in an otherwise healthy market. This article voices the opinion of a few of the EA blog's friends on the subject.

3 Comments:

The house torpedoed it today, and frankly its a good thing. The currently proposed open skies deal is not fair, not to mention the fact that international pricing is FAR from deregulated. Even if it was a good deal the last thing we need is more money for airline super mergers.

Putting the fairness of the open skies agreement aside...We are actively advocating more driect investment by foreign sources into the industry. The US has the healthiest air service market in the world but it is served by a set of very sick air carriers. This is far from a black & white issue but one of the reasons US sources continue to pump capital into the old airlines is that they are insulated from new competiton because of this constraint in the capital markets. We have setup a mercantilistic economic airline system and the maintenance of that mercantilistic balance is critical to labor and most management teams. This has created an inefficent capital cycle that, among other effects, ultimately leads to unnaturally high fares in the domestic US market.

New capital sources will not help in every case. Indeed some will simply continue to feed the mess we are in. But other capital sources will fund new entrants that are efficient and delvier a better product (defined as a combination of lower fares, better service, etc.). As that gains momentum the inefficient capital cycle will lose its momentum and some of the old guard will combine or just go away. That would take to 10 to 15 years to fully play out and it is full of uncertain results (as is true for any market that becomes less regulated). That uncertainty along with all of the upside that comes with it appears to be more than offset by the prospect of certain politicians losing tens of thousands of jobs in their districts as a result of this kind of change. That's too bad for the flying public at large. There is no good reason that we should be paying Northwest triple the price for a domestic ticket that a consumer pays for an easyJet flight in the UK...and ends up getting a debatably inferior experience on NW.